India increases taxes on foreign smartphones

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Why tax increases in India don’t have to spell disaster for smartphone manufacturers importing to the country

Changes in tax regulations for imported smartphones and PCBs present both opportunities and threats for all players in one of the mobile industry’s biggest battle ground, but manufacturing quality will ultimately determine who comes out on top.

In April, the Indian government raised customs duty on imported mobile phones from 15% to 20%. It was in an effort to curb supplies from overseas and build up the domestic industry and take control of a much larger portion of India’s $10bn smartphone market.

But it’s not just International OEMs importing completed handsets that are about to suffer at the hands of India’s Ministry of Electronics and Information Technology. They have proposed a further 10% levy on the import of populated printed circuit boards (PCBs). This is designed to push both international and local manufacturers into sourcing locally produced PCBs instead. In what is the second largest smartphone market in the world behind China, this poses a real challenge to the industry’s dominant OEMs and component manufacturers, who have a difficult decision to make.

Do importing OEMs increase the cost of handsets, inviting further competition from India’s home-grown smartphone brands? Or do they suffer a decrease in margins and overall profitability?

There is also the fact that Indian OEMs are being hit equally hard if they import PCBs, meaning they too will be in a similar position if they continue to import components. If these manufacturers already offer a cost-effective alternative to those provided by the world’s leading OEMs, then they too can push their prices up. But if this is the case for the majority of handsets, then rather than promote the interests of local companies, you’ve simply created a more expensive smartphone market.

The flip side of this is that these actions could encourage the industry’s leading players to widen their limited manufacturing and assembly capabilities in India. This would give an increased competitive advantage to those that already have the capabilities to mount components onto PCBs in the country.

Investing millions in local infrastructure though must show a return on investment together with the quality of produce maintained, and with manufacturing efficiencies achieved. Today, an increasing number of smartphones come with some form of protection against liquid damage, even on lower tier devices. In India, a country notable for high levels of humidity, the requirement is even greater where liquid ingress is a significant factor in the millions of smartphones that are damaged beyond repair each year.

As India’s network infrastructure improves, consumers expect better and better connectivity, but it doesn’t matter how good the network gets if handsets aren’t able to stand up to the rigour of everyday life on the sub-continent. The mechanical gaskets and seals often used by manufacturers to protect against liquid ingress can place limits on handset design. Perhaps more significantly, once compromised, are worse than useless – holding liquids inside a device once they’ve got causing greater damage. Increasingly, manufacturers are turning to hydrophobic nano coating solutions to protect electronic devices, with their application particularly well suited to ensuring the reliability of handsets in India.

Hydrophobic nano coatings are applied through a low-pressure plasma deposition process that coats the device inside and out with a nano-scale polymer chemically bonded to the surface. The nano coating application is at the end of a production cycle with manufacturers using it more often to integrate it at multiple stages of the production process.

The market for hydrophobic nano coating has gone from strength to strength in recent years, with several suppliers operating around the world. But for manufacturers who decide to use hydrophobic coatings on their PCBs and smartphones in India, there are a limited number of options open to them. In fact, there is only one; P2i.

P2i is the only provider of both Splash-proof (whole device) and barrier coatings (directly applied to PCBs) that currently operates internationally across five different continents and is the only supplier currently with machines in India. P2i is ready to work with manufacturers operating in India to better meet the demands of the market while limiting the tax burden that they face from importing products into the country. P2i’s customer base includes leading global manufacturers Lenovo and Huawei, and the company puts a strong emphasis on building trust and quality by advising the best possible solution to support the international market.

Hydrophobic nano coatings are the future of protection against liquid ingress, but manufacturers need to consider how best to integrate their usage into their production lines as manufacturing capabilities are moved to India to serve the local market. Only by working with a trusted supplier, with experience of working in India, can they expect to deliver the kind of service and quality of product that consumers have increasingly come to expect.

For Indian smartphone brands, there is a real opportunity here to complete on a level playing field with the world’s leading smartphone manufactures. But as these big names start to explore the practicalities of manufacturing locally, local producers need to ensure that the products they offer match or exceed the capabilities of the competition. Cost-effective water resistance which allows greater design flexibility, is one of the most significant ways today that they can improve the quality of local produce, and deliver a product ideally suited to the Indian market.